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Irrigation and Drought in the Northwest and the Potential for Market-based Reallocation of Water to Protect High-Value Crops

July 14, 2015

Drought in Oregon in 2015 ranges from abnormally dry to extreme. As of June 1, 2015 Oregon Gov. Kate Brown declared drought emergencies for 15 Oregon counties. Some areas of the state are experiencing temperatures higher than historic records. This follows the second warmest winter on record, where much of the precipitation fell as rain rather than snow.[1] The lack of snow has severely impacted stream flows.[2] Streamflow forecasts for areas east of the Cascades are from a tenth to one half of average for the summer season; and from 30 to 60% of average on the West side of the Cascades.[3] The situation is likewise grim in Washington: almost 70 percent of Washington’s rivers and streams are running at below 10% of normal flows.[4] As a result of these conditions, regulation of water is occurring throughout the region, though different areas are experiencing different levels of severity.

With droughts come the inevitable, mandatory cutbacks in water use, and the painful, well-publicized stories of hardship to people, animals, and crops. Such episodes usually force even greater efforts to conserve water, particularly in the agricultural sector, which struggles mightily to preserve crop health in such times, and among irrigation districts, which manage most of the irrigation water. Not all crops are equal, and it is surprising to some that across-the-board curtailments can be devastating to some high-value crops, and relatively painless to others. Water shortages, and the prospect of potentially severe cutbacks in the future, have also stimulated creative thinking about how the effects of curtailment can be more sensibly "reallocated" among crops by market mechanisms. This article will discuss some of those creative market mechanisms.

Because most of the water rights in the region are held in irrigation, affecting thousands of acres of land, this article will look at irrigation district responses to the drought, focusing on selected examples from Oregon, and how the economic impacts of curtailment on water district patrons could likely be ameliorated in some cases by transactional approaches potentially more sensitive to the economic impacts of curtailment.[5] A few case studies illustrate how such approaches might work. These actions are largely experimental but they offer promising alternatives to the traditional, “blanket” curtailment approach. To understand the difference, this article briefly explains each approach.

What is Curtailment?

Curtailment in the traditional sense means cutting back the use of water. A district will typically use a rotation method, a "share the pain method" of proportional, across-the-board curtailment, or a full cut-off, specifying a date after which no further irrigation deliveries will be made.[6] The rotation method typically involves dividing irrigators into groups, allowing one group to irrigate while other users wait, and then rotating in like manner through the other users in a cycle. There may be three, five, seven or more days in which one group of users may irrigate while others wait; the ones who waited then get their turn. In the "share the pain" approach, all users’ water uses are proportionally reduced. For example, a district may tell water users that as of the certain date all users are restricted to using only three quarters of their normal rate for the remainder of the irrigation season. And of course in tight circumstances, the district may announce as of what date in the irrigation season irrigation water will no longer be available to anyone.[7]

A snapshot of how irrigation districts in Oregon are dealing with the present drought illustrates how curtailment works in practice. Responses to the current drought have been predictable. One Oregon irrigation district in the Deschutes basin reduced delivery from 5.5 gallons per minute (gpm) per acre to 4.5 gpm per acre.[8] A district in the Hood River basin restricted consumption to three quarters of the normal water right, from 5.6 gpm per acre to 4.2 gpm per acre. It also instituted a rotation schedule in early July calling for 3.5 days of water on and 3.5 days of water off.[9] A district in Medford, Oregon determined that all water users would have to take a 30% reduction to make it at least through August, but water would be shut off completely "when it is deemed impractical to maintain canal and lateral flows for deliveries to all users equally." That district also initiated staged water use, requiring 18 days between irrigation events for pressurized water deliveries, and 21 days between events for flood irrigation.[10]

For districts drawing from multiple sources, the patrons’ cutbacks may vary depending upon the differing availabilities of the source waters. For example, a Deschutes basin district has allowed use of 2.25 acre feet per acre for land irrigated from the Deschutes River, but only 1.25 acre-feet per acre for those irrigated from the Crooked River.[11] The priority of a district’s water right can also make a significant difference: A district with the oldest water right on the Deschutes River (1899) has not mandated any curtailments, but has encouraged its patrons to use their water wisely.[12]

The method for enforcing curtailment restrictions is always an issue. Deliveries are sometimes expressly conditioned to be made only to lands on which assessments have been paid up.[13] At least one district conditions its deliveries on whether efficiency and conservation measures are being carried out by the water user.[14] In addition, users taking water out of turn "will forfeit their right to water on the next regular scheduled irrigation rotation".[15]

The Economics of Curtailment

All these measures are independent of the value of the crop being irrigated, or the resilience of the particular crop to "tough it out" through a long dry spell. All across-the-board methods of curtailment, however employed, have the advantage of appearing more equitable, but they are blind to the effects of curtailment on particular crops.[16] This is true whether the pain is shared on an as-you-go proportionality basis, or on the basis of a temporal cut off to all users midseason.

An economist might conclude that any curtailment approach that ignores the value of the crop, or that ignores the variable consequences of reduced water on different types of crops, is flawed. For example, would it make sense to curtail a pear orchard in the same manner as a hayfield or pasture? A pear tree can forever be lost if starved of water for a month or even less. A field of hay or pasture and will likely spring back. The value loss to the orchard farmer in the former case could be dozens of times more than in the latter cases.

Although it sounds equitable, in the sense that allocations are distributed equally, it is clear that "share the pain" is in fact not equitable, at least from economic perspective. If one examines net earnings per acre by crop, it is apparent that the loss of high-value crops inflicts far greater damage and loss on the farmer than the loss of low-value crops. A March, 2011 study of the Yakima River Basin prepared for the United States Bureau of Reclamation, showed that the net annual farm earnings from apples ($2,170) were over twice that from potatoes ($940), and about 24 times that from wheat ($90).[17]

That study, titled Yakima River Basin Study, Market-Based Reallocation of Water Resources Technical Memorandum, analyzed an element of the Yakima Basin Integrated Water Resources Management Plan "to see the extent to which the plan might stimulate market-based reallocation of water to offset irrigation-related economic losses within the Yakima Project due to future, severe drought conditions."[18] It developed a spreadsheet model that simulated "trades that would move water from crops with lower annual net farm earnings to crops with higher annual net farm earnings per acre-foot."[19] It assumed that a severe drought would provide only about 40% of the full water entitlement.[20] It also assumed that irrigators experiencing reduced water supplies "would use water to satisfy the crop-irrigation requirements of their higher-value crops as much as possible, leave other acreage unirrigated, and realize no net farm earnings from the fallowed land."[21] This study provided useful insights into how water trades could reduce the loss of overall annual net farm earnings. Among five irrigation districts studied within the Yakima Project, annual net farm earnings without drought (in 2011) totaled about $280 million. In a severe drought year with farmers receiving 40% of their full entitlement and without any trading, annual net farm earnings under the model would fall to about $200 million, for an estimated $80 million loss.[22] But with trading, the model predicted that the losses would be reduced by about two-thirds to three-quarters that amount, depending upon initial assumptions.[23]

One can readily appreciate the agricultural fact of life that there is disparity in the value of different types of crops. In Oregon in 2012, the following sample crops had the following per-acre value, computed from records of the Oregon Department of Agriculture:[24]

Summary of Selected Crop Values/Acre, Oregon, 2012

CropValue per Acre
Pears, other$8,892
Apples$8,125
Onions, storage$6,812
Cranberries$5,656
Potatoes$4,345
Hazelnuts$2,196
Fescue seed, tall$1,065
Hay, alfalfa$1,004
Barley$437
Hay, all other$416

The ratio of disparity in per-acre value between the sample of crops at the top and at the bottom of this chart is about 20:1. If a water user with a pear crop is curtailed in the same way as a water user with the hay crop, they would suffer drastically different economic consequences. Note, in particular, that the above table only assesses the value of the annual crop. It does not take into consideration the multi-year losses that could befall a pear orchard if the trees die, new trees must be planted, and several seasons pass without a commercial crop harvest. Across-the-board methods of curtailment affect all users equally; but they impact users unequally.

An Arizona Fallowing Project

Economists contend that the most efficient means of adjusting such disparities in economic impact, and allocating resources to more valued uses, is to allow for market transactions between willing buyers and willing sellers. As assumed in the Yakima study, someone may be willing to pay a farmer with a low-value crop not to irrigate, if deemed an acceptable investment.[25] Depending on circumstances, anywhere there is salable “excess water” and a willing buyer, there is a potential market transaction.[26] The simplest cases involve mere fallowing of land and simple forbearance agreements, for in those cases there need not be any administratively-approved transfer of water rights; it is entirely contractual.

An interesting example of district patrons fallowing for money is a three-year pilot project in Arizona which contractually reallocated water to a “groundwater replenishment district” for use by others. The Yuma Mesa Irrigation and Drainage District (YMIDD) and the Central Arizona Groundwater Replenishment District (CAGRD) worked out an agreement in January, 2014, whereby volunteer farmers are being paid not to grow crops and, thus, not to divert Colorado River water that otherwise would be used to irrigate the fallowed lands.[27] The purpose of the program is to conserve water in the Colorado River system, and allow Colorado River stakeholders a chance to “evaluate the benefits and impacts of creating conserved water through rotational fallowing”.[28] The saved water is maintained in Lake Mead, thus mitigating its dwindling levels and helping forestall shortages to water users in the Lower Colorado River Basin.[29] CAGRD pays $750 an acre to the fallowing farmer. No administrative transfers are involved.

In the Arizona case, Lake Mead is a "bank" for the purchased water. The buyer is an entity outside of the irrigation district in the business of acquiring water for storage and reuse. It seems possible, from transactions like the one in Arizona, that the idea could be reshaped into a customized, economic approach to curtailment in district drought planning. But what about the case where there is no entity like CAGRD to act as a "storage partner"? What if the purchaser were the irrigation district itself? May a district buy back water from some of its patrons, so that the district then diverts less water and the likelihood of patron curtailment is reduced? Or, in the case of a district with storage, may the bought-back water remain in storage, also reducing the risk of curtailment, or be specifically available to patrons willing to pay for the extra stored water?

An Oregon Experiment

These are intriguing questions. Oregon water law, like in many states, typically affords irrigation districts wide — though certainly not unlimited — authority over the water rights within their jurisdiction, such that districts are well positioned to employ creative market-based water allocation approaches. The Irrigation District Law directs districts to “[e]stablish equitable bylaws, rules and regulations for the administration of the district and for the distribution and use of water among the landowners.”[30] And while many districts have adopted rules that in times of shortage require water is to be prorated on the basis of acreage, the statutory directive that distribution be “equitable” does not compel a share-the-pain approach to curtailment in times of water shortage.[31]

Some districts and basins in Oregon have indeed considered transactional approaches to drought water reallocation.[32] In one Oregon scenario, a district informed its patrons that it would pay farmers $300 per acre to forbear irrigating for the season, up to a certain acreage cap. The price of the "buyback" was fixed to induce the lands with the lowest value crops to sell to the district its right to use water. If a hayfield typically yielded about this price per acre, or perhaps a little less, the district used that information to set its own offer price. The offer had conditions: assessments had to be current and the land had to be in production and regularly irrigated (the water rights associated with the land therefore not being subject to forfeiture for non-use). If agreeable, an interested farmer would sign up for a single season, under a binding "forbearance contract," whereby he or she would surrender his or her right to use water on his land for the entire season. A farmer with a crop value that was higher than the offer price would have no incentive to forbear. In the case mentioned, the plan was successful. There was a full buy-up of the set-aside funds in the spring of 2015, and more water was left in storage. This has reduced the risk of curtailment to other users during the irrigation season. As with the Arizona case, there was no administrative transfer required or involved for this fallowing project.[33]

Using a Reverse Auction to Determine Price

One of the notable issues in this sort of intra-district arrangement is finding the right price to offer patron water users. One can do research on crops, costs, yields, and earnings to ascertain as accurately as possible what price a user ought to pay, and establish it administratively. This method has the virtues of simplicity, certainty, and low transaction costs. But it is not fundamentally market-based.[34] As such one may never know whether one has underpaid or overpaid, relative to what a free-market transaction might have yielded. It nevertheless appeared to work here for its intended purpose.

A quasi-market method that has been used in the Yakima basin, the Deschutes basin, and in various places throughout the West, is the so-called “reverse auction.” Reverse auctions, or “procurement auctions” as they are also called, are run by the buyer and not the seller. If a buyer has water it wishes to acquire, it solicits bids from potential sellers. For example, in 2005, the Washington Department of Ecology conducted its first reverse auction for acquiring water in the Yakima River basin for the benefit of fish flows. Indeed, most reverse auctions, including those by the Department of Ecology, have been for the purpose of increasing fish flows in tributary waters. Here, the pricing mechanism under the scenario we are considering would need to be designed to enable an irrigation district (or third-party entity, if there is one) to acquire forbearance agreements from patrons.[35] There are many ways of designing such auctions. The overriding goal is to acquire the maximum amount of water at the minimum price, involving multiple possible units of acquisition (e.g., acre-feet of water, acres of fallowing, etc.). Water auctions of this kind generally take the form of a sealed-bid, multiple-unit procurement auction, and are best managed in a single round with both a set reserve price and a budget cap which minimizes the per-unit cost paid for water.[36] A reverse auction in a district, presumably set up and run by an outsider under contract with the district, could theoretically provide a practical pricing mechanism.

Further Transitions to a Market-based Approach

The obvious concern for perpetuating such a plan where the district is the purchaser is the cost to a district of the buyouts. This cost could conceivably be addressed in several ways. A district could, if permitted by its governing rules, generate a “drought reserve fund” from assessments during non-drought years, building a reservoir of funds for such buyouts.[37] Over the long haul, however, say during a drought of several years, it could prove to be an unacceptable drain on district resources.

Ultimately, one might strive for a kind of platform – a trading platform – where a water user willing to fallow certain acres of land could make known that intention and state that, for a given price (or bid), he or she would sell the right to irrigate those acres for the season. A prospective buyer, which could presumably be another irrigation district patron (with a high-value crop or other water need), would indicate an intention to pay a particular price for that result, and the trading would occur on the platform until prices matched and a transaction had been consummated. Such a format, where a buyer is putting up the money, may get even closer to a true market-price than a reverse auction.[38]

The district would have a particular role here: first, the forbearance contracts with the seller would still likely be between the district and the seller, for the benefit of the buyer, since the district is the far more capable party to consistently and quickly set up, monitor, and enforce such contracts. Second, while the trade would occur between buyer and seller, the seller will want to know that it is getting value for the money expended. One obvious answer would be that the buyer receives that amount of wet water that is generated by the forbearance agreement, and the district's role here is to be sure that happens, probably by some sort of priority arrangement. In other words, the buyer has purchased priority relief from curtailment to the extent of the volume of water given up by the seller. If, for instance, a seller is fallowing 30 acres of land and thereby not diverting or withdrawing, say, 90 acre-feet of water, the buyer would have first right to that water and thereby obtain relief to that extent against the district’s otherwise across-the-board curtailment.

Conclusion

Drought is upon us, and may be an unwelcome guest more often than we desire. Creative economic solutions could stretch existing resources to accommodate that reality. Current district across-the board curtailment plans can be viewed as economically inequitable; market mechanisms can create opportunities for districts to reallocate water to the highest-value uses in a manner that would likely be perceived as fair and reasonable. This kind of in-district conservation requires advance preparation. There needs to be a period of experimenting with the best marketing platforms and mechanisms, perhaps starting with single-season fallowing agreements and later evolving to three- or four-year option agreements requiring fallowing upon notice from the district and payment to seller of the applicable price. The implementation of such projects should occur well before extended droughts make negotiation more difficult or impossible.

If you would like further information on this topic, please feel free to contact Douglas MacDougal at Marten Law, 503.241.2656.

* I wish to thank Harry Seeley of WestWater Research, and Barbara Wyse of Highland Economics for their useful input and stimulating discussion on some of the economic concepts discussed in this article.

[1] Over half of the long-term snowpack monitoring sites received the lowest and earliest peak snowpack in over 30 years. See generally, Memorandum to the Water Resources Commission on Drought and Climate Conditions for Oregon dated June 18, 2015, from Ken Starr, Hydrographic Section Manager, Keith Mills, State Engineer, and Alyssa Mucken, IWRS Program Coordinator (OWRD Memorandum).

[2] For a description of the impact on one water basin, see Adapting to Drought and Climate Change in the Upper Klamath Basin Comprehensive Agreement.

[3] See OWRD Memorandum.

[4] See http://www.ecy.wa.gov/drought/.

[5] Although this article is written in the context of the current drought, the ideas discussed in it should be applicable to any low-water years, whether or not a formal declaration of drought is issued in a given year.

[6] Methods of curtailment should be distinguished from the state-managed "regulation" of water rights by the water master. Watermasters manage the reduction of water use by cutting back water rights in order of the priority date of those rights, with the most recent water rights, the “junior” rights, being affected first. Water right regulation within districts is different, being controlled by the manager of the district for the benefit of its patrons. But such regulation is still subject to the rules and regulations affecting the water rights applicable to the district’s lands. Districts typically own or control their water rights, and have the right to manage their water within their districts, subject to such rules and regulations and to the considerations noted in footnote 31.

[7] The earlier this can be predicted and announced the better, because farmers need to plan their plantings. Reasonable notice of likely limited water availability will typically result in a farmer or rancher taking fields out of production, by fallowing his or her land rather than risking losing a crop.

[8] See http://www.arnoldirrigationdistrict.com/.

[9] See http://fidhr.org/pdf/2015-Drought%20Plan-04-15-15-Final.pdf) and http://fidhr.org/irrig-delivery-status.htm.

[10] See http://medfordid.org/.

[11] See http://www.northunitid.com/news-a-events.

[12] See http://swalley.com/news.pdf.

[13] See http://www.arnoldirrigationdistrict.com/index.php/download_file/view/36/95/.

[14] See http://rrvid.org/index.php/district-info/rules-regulations.

[15] Id.

[16] Our inherited system of regulating water rights is not market-driven. Enforcement of irrigation water use under the prior appropriation system is unrelated to the nature of the crop. A priority call system favors the oldest water rights, regardless of crop or its value.

[17] Yakima River Basin Study, Market-Based Reallocation of Water Resources Technical Memorandum prepared for the United States Bureau of Reclamation, Table A-1, p.A-2 (March, 2011). Available at: http://www.usbr.gov/pn/programs/yrbwep/reports/tm/4-12marketreallocation.pdf. Annual net farm earnings in dollars per acre foot are computed by taking the price per (appropriate) unit of the crop multiplied by the average yield of the crop per acre and subtracting the annual variable cost of the crop in dollars per acre. For example, the average yield of hay per acre in the 2011 study model is 4.7 tons. The average price per ton of hay is given as $115, for a yield of about $540 dollars per acre. But the "annual variable cost" of hay is shown as $323 per ton per acre. Hence the "annual net farm earnings" from hay is given (rounded) as about $220 per acre.

[18] Id. at 1.

[19] Id.

[20] Id.

[21] Id.

[22] Id. at 4-5. See also the remaining text of the document for details on related scenarios.

[23] Id.

[24] 2013 Oregon Agripedia, p.3 (Oregon Department of Agriculture, 2013). Online: http://www.oregon.gov/ODA/shared/Documents/Publications/Administration/Agripedia.pdf. The value per-acre of a crop was computed by multiplying the per-acre yield of the crop (in the appropriate units) by the price per unit of that crop. See also http://www.oregon.gov/ODA/shared/Documents/Publications/Administration/ORAgFactsFigures.pdf for summaries of Oregon agricultural statistics.

[25] If the investment is a hedge against the risk of curtailment, the investment may resemble an insurance policy. If the investment is for a discrete sum of assured water, then it is a purchase (or lease) transaction. Many of the irrigation forbearance agreements in the West seem to be for the purpose of augmenting fish flows, where the purchaser is a governmental entity or an environmental organization. Here we are dealing with the rarer case of forbearance agreements that directly or indirectly enable or facilitate other consumptive uses.

[26] The market for irrigation water in California to keep trees and crops alive has driven the prices there are to all-time highs. See http://www.seattletimes.com/business/drought-heats-up-water-sales-auctions-in-desperate-california/.

[27] For a complete description of the project, see https://wrrc.arizona.edu/arizona-land-fallowing.

[28] Id.

[29] There are restrictions in place on who can qualify: fallowed land must have produced irrigated crops in four of the last five years, and must total a minimum of five contiguous acres. Also, the guidelines for the program require that participating landowners must control weeds and dust on the fallowed land. They must also maintain ditch structures within the privately owned irrigation systems to avoid prejudice to downstream users. Participants also have to continue paying district assessments on their land. The program is estimated to fallow a maximum of 1500 acres per year and save 20 to 60 thousand acre-feet of Colorado River water. Id.

[30] ORS 545.221(1)(c).

[31] Districts have significant authority with regard to intra-district water right allocation and transfer, including changes in places of use and points of appropriation. The Oregon Supreme Court clarified the relationship between irrigation districts and their patrons with regard to district-serviced water rights in the landmark case of Fort Vannoy Irrigation District v. Water Resources Commission, 345 Or. 56 (2008). In short, where an irrigation district is the record owner of a certificated water right, “[t]he district holds legal title to the water right as trustee, and the members hold equitable title as the beneficiaries. Acting in a fiduciary capacity, the district's duties as trustee include management of the water right and the water that it provides, and the members enjoy the use of that water as their beneficial interest.” Id. at 86. As a result, irrigation districts control the water rights in their names with respect to, e.g., transfers and changes in place of use or point of diversion, though the trust relationship necessarily places some limitations on their ability to do so. For example, in most instances a district cannot transfer water rights without consent of the owner of the land to which the right is appurtenant. OAR 690-380-4010. As will be seen below, however, formal, administrative transfers are unnecessary when dealing with simple forbearance contracts. A simple agreement that a landowner will cease irrigating is not a "transfer" of place of use, point of diversion, or purpose of use under Oregon law; it is simply the election of a landowner to forbear exercising his or her rights for a period of time. Water that has not been diverted and put to beneficial use is therefore available for other district needs, consistent with its water rights.

[32] The Klamath Basin, for example, has for years been the subject of pilot projects to balance water supply and demand through market-based approaches. The current water banking program is funded by Reclamation and administered by Klamath Water and Power Agency, and is known as the Water User Mitigation Program (WUMP). See generally, http://kwapa.org/programs.There is a fallowing component to this program http://kwapa.org/assets/Application-Packet-DM-2015_2.pdf. But because of the unique nature of the Klamath Basin, the enormous complexity of federal, tribal, state, and private interests involved, and the ongoing controversy about the use of Reclamation funds for irrigator support under the WUMP (see, e.g., http://www.eenews.net/eenewspm/2015/06/30/stories/1060021124 and http://www.eenews.net/assets/2015/06/30/document_pm_02.pdf), all of which factors dilute its usefulness as a clarifying example, we will not focus upon it in this article.

[33] One of the unquestioned benefits of fallowing and using simple forbearance contracts is that it avoids the time and expense of transferring water rights administratively. While there is increased flexibility with some types of transfers during a drought declaration (see, e.g., ORS 536.750(b) and OAR 690-019-0055), there is no question that private contractual arrangements avoiding administrative processes are cheaper and more responsive to changing conditions. Setting things in place before there is a drought is of course advised. Indeed, multi-year options might be considered whereby if in the early spring it appears that conditions are worsening, an option can be exercised requiring the fallowing farmer to forbear from irrigation and receive the preset option price. If drought conditions have ameliorated, and curtailment seems unlikely, of course the option needn’t be exercised. A word of caution here is appropriate for multi-year arrangements: under ORS 540.610 a water right unused for 5 consecutive years is subject to a presumption of forfeiture. While there are some exceptions noted in the statute, a kind of rotational fallowing may be wise for prospective sellers considering multi-year fallowing if there is any chance of risking forfeiture.

[34] A more market-based approach would create a forum for competition among willing buyers and sellers. In the irrigation district context, however, the administrative method described here has the additional advantage of not pitting patron against patron in a bidding war.

[35] The Department of Ecology’s experience in the Yakima basin has had mixed results. Ecology ran a reverse auction in 2007. It received only one bid. Based on the response to the 2005 drought year auction, it was surprised. See http://www.ecy.wa.gov/programs/wr/cro/yrtrwra2015.html. A follow-up survey was initiated to figure out what went wrong. A focus group was asked to provide a list of reasons as to why they chose not to participate in the reverse auction. The common answer seem to be, "They didn't feel that they were given the tools to establish a fair price for their water rights" and this led to a feeling of mistrust in the process. See http://www.ecy.wa.gov/programs/wr/cro/images/pdfs/revauction/AnchorEnviroAttitudeskeyfindings111207_r.pdf

[36] For a clear discussion of how procurement auctions work, and their many variations, see M. O’Donnell and B. Colby, Water Auction Design for Supply Reliability: Design, Implementation, and Evaluation (University of Arizona, May, 2009), https://ag.arizona.edu/arec/pubs/facultypubs/ewsr-AUCTION-final-5-12-10.pdf. Some other important concerns in such auctions include defining eligibility for the auction; specifying consistent units (acre-feet or acres etc.) for the purchase; deciding whether and how to disclose the reserve price and/or budget cap; deciding whether and how to use information technology; specifying the decision rule that separates winners from losers; and determining procedure in the event of ties. Id. at 5-9.

[37] It is best to plan for drought when there is no drought. Water economist Harry Seely has commented that "drought is the worst time to try and negotiate an agreement."

[38] Water banks have many purposes but one is to facilitate getting buyers and sellers together, including in the way described in the text. “A bank may operate primarily to bring together buyers and sellers, lessors and lessees, and to facilitate trades. This may be achieved by either providing a venue for buyers and sellers to exchange information such as an electronic forum where water quantities and prices may be placed for sale (or lease) and where buyers may purchase (or lease) entitlements.” M. O’Donnell and B. Colby, Water Banks: a Tool for Enhancing Water Supply Reliability, p. 4(University of Arizona, January, 2010), https://ag.arizona.edu/arec/pubs/facultypubs/ewsr-Banks-final-5-12-10.pdf. The scenario was also described by the authors as a “bulletin board system where sellers supply information to the bulletin board and purchasers may read the board and make purchase offers to sellers.” Id.

 

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